Edward Jones, Morgan Stanley Face 401(k) Fee Suits

Edward Jones and Morgan Stanley have become the latest targets of lawsuits filed by participants of their 401(k) plans.

A suit filed on Friday against Morgan Stanley alleges that the company mismanaged its 401(k) plan and cost its participants hundreds of millions of dollars in excessive fees. It also alleges that the firm marketed its own poorly-performing funds in the plan to participants instead of offering better alternatives. The suit maintains that one of the funds offered ranked in the bottom percentile of all small-cap funds in 2014 and near the bottom in 2015.

Lead plaintiff Robert Patterson, a Morgan Stanley plan participant from January 2011 to April 2014, stated in the language of the suit that Morgan Stanley “treated the plan as an opportunity to promote Morgan Stanley’s own mutual fund business and maximize profits.” The suit is seeking class-action status for all 401(k) plan participants from March 2010 to February 2016. (For more, see: How to Know if Your 401(k) Plan Fees Are Too High.)

Edward Jones is facing a similar set of allegations in the suit that was brought against it on Aug. 19. This suit, which is also seeking class-action status, maintains that the company paid an unreasonable level of fees to the plan’s record keeper, Mercer HR Services Inc., which led to the loss of $8 million in retirement savings from Aug. 19, 2010 through the present. It also alleges that the firm offered high-cost fund choices when cheaper alternatives were available, which led to the additional payment of $13 million in excessive fees. The plaintiffs allege that plan participants could have saved tens of millions of dollars more if the funds in the plan were invested in collective investment trust funds and separately managed accounts.

A spokesman for Edward Jones told Investment News, “At the heart of the lawsuit is the allegation that the firm profits from the plan's investments by retaining for itself revenue sharing payments paid by product partners. This allegation is patently false.” He also said the lawsuit “makes numerous faulty assumptions, contains factual errors and inaccurately characterizes the manner in which the plan is administered. None of these has any evidentiary support and will be proven to be demonstrably false.” (For more, see: Universities Being Hit with Retirement Plan Fee Suits.)

Similarly, other financial services firms have seen such legal action since June, including Neuberger Berman, New York Life Insurance Co., American Century Investments and Franklin Templeton. (For more, see: Neuberger Berman Hit with 401(k) Fee Suit.)